Stan Halliday: In my experience, the specific language in the surety bond can significantly impact both the time period in which a surety must respond and the alternatives available to the surety when an owner declares a default.

The Expedited Dispute Resolution (EDR) performance bond combines the coverage options of a traditional AIA 312 performance bond with a streamlined claim investigation and adjudication process that helps resolve disputes quickly and keeps the project’s construction schedule on track. The EDR bond form expressly covers liquidated damages and warranty provisions and can be further tailored to align with the underlying contract terms.

Travelers offers these bonds to benefit the owner of a construction project and the contractor, too. Essentially, an EDR bond enables a quicker and more well-defined resolution from the surety than traditional performance bonds and is treated as a credible form of performance security by lenders and ratings agencies.

An EDR bond is not well-suited to every construction project. (Photo: iStock)

PC360: When should EDRs be used?

Halliday: While an EDR bond has some significant benefits, it is not suited for every construction project. It was created to address the needs of larger Design-Build and Engineer-Procure-Construct projects, particularly those with a time-critical component.

Examples of projects where EDR bonds could be beneficial include power plants, oil and gas pipeline reconstruction, manufacturing facilities, data centers, high-tech projects, private institutions and public-private partnerships. EDR bonds aren’t the best fit for traditional design-bid-build projects where the design risk falls under a separate contract than the construction contract.

In some instances, an EDR may provide significantly more coverage in the event of a construction contract dispute. (Photo: iStock)

PC360: Can you provide an example of where an EDR bond likely would be beneficial?

Halliday: Imagine a case where a dispute arises between the contractor and the owner on a large Design-Build project. The dispute centers on why the contractor is behind on the original schedule for completion. The contractor says that permitting delays outside of its control are the cause. The owner says that’s not the case. Further complicating matters is the fact that the contractor’s parent company has developed significant financial difficulties and subcontractors and suppliers are not being paid, so they’ve stopped working. The owner’s security is a 5 percent or 10 percent LOC, which the owner has almost entirely exhausted to get the subcontractors to return to work.

The owner may have significant financial and reputational exposure should the schedule be delayed further or if the contractor is not able to complete the work. Plus, should the owner prevail on the responsibility for the delay, it’s not certain that the contractor can pay the damages.

Were the EDR bond in place, it would offer:

Significantly more coverage (up to 100 percent of the contract value for both performance of the contract and payment of all subcontractors and suppliers) for the owner than a 5 percent or 10 percent LOC. The taxpayers and subcontractors/suppliers would be protected.

A 15-day claim investigation by the surety to determine if the owner’s declaration of default is valid.

A 45-day arbitration proceeding if the surety disputes the default declaration. This would result in an independent third-party decision that is binding on all parties.

Security for the owner that the project schedule would continue with minimal delays. Either the contractor or its surety would make sure the project continues and the schedule is maintained as best as possible.

Full coverage for liquidated damages and warranty issues under the performance bond.